By Lin Zhijia and Shaw Wan

BEIJING, August 10 (TMTPost) — Many chip companies are shifting their businesses towards the new energy vehicle (NEV) industry amid the down cycle of the global semiconductor industry, following the success of semiconductor manufacturers like NXP, ON Semiconductor, Infineon, STMicroelectronics, BYD, and Wingtech.

“The automotive market is bringing more opportunities for the semiconductor industry, as it gets more and more automated and electrified. In particular, the development of self-driving cars and electric vehicles is speeding up in the Chinese market, creating more opportunities for the Chinese automakers,” said Trina Watt, vice president of product management at Imagination Technologies, the fourth largest chip maker in the world. 

Credit: Unsplash

The Booming NEV Market

The era of fuel vehicles has passed. Instead, the NEVs are capturing a bigger share of the automotive market.

In 2022, the global sales of NEVs reached 10.5 million units, of which pure electric vehicles (EVs) accounted for 72 percent, up by 3 percentage points from 2021, according to the Electric Vehicle Outlook  by BloombergNEF. The number is expected to surpass 26.6 million in 2026. The report also estimated that NEVs will take up 75 percent of the global auto market in 2040, with a sales volume of 74 million units.

As for the Chinese market, the sales volume of the first half of 2023 reached 3.75 million units, growing by 44.1 percent compared with the same period of last year. The production capacity was 3.79 million units, a year-on-year increase of 42.4 percent.

Within just five years, China turned itself into the world’s largest exporter from the largest importer. In the first quarter of 2023, China exported 1.07 million vehicles, overtaking Japan to lead the world's car export. NEVs contributed 25 percent of the export volume, with a year-on-year increase of more than 100 percent.

Such market growth benefits not only the supply chains of NEVs, such as power batteries and original equipment manufacturers (OEMs), but also the semiconductor industry, as an electric vehicle uses about 1,500 to 3,000 chips.

Challenges Faced by Chinese EV Makers

Despite the boom, Chinese electric vehicle manufacturers didn’t get to make much money.

For example, in terms of the revenues generated from car export, China is not even among the top ten. That’s because foreign brands took most of the profits. Among the NEVs exported in the first three months of the year, nearly 40 percent came from the Model series by the American EV maker Tesla. As for the domestic brands, BYD contributed most, accounting for 17 percent. Other EV makers, such as Li Auto and NIO, carved out what was left for them.

Many other Chinese NEV manufacturers didn’t even make it to the final round, as it has been a cash-burning industry. From 2020 to August 2022 , 17 of them went bankrupt. Byton, a Chinese-German all-electric vehicle automotive brand established in 2017, filed for bankruptcy again in June . The company failed to reach mass production  status after burning 8.4 billion yuan.

The Chinese government has been supporting the NEV industry since 2010 by providing subsidies and tax exemption to buyers. According to data from the Ministry of Industry and Information Technology, in the past 13 years, China has handed out over 152.1 billion yuan in NEV subsidies to at least 3.17 million vehicles.

However, according to a notice by the Ministry of Finance in 2016, 72 companies had defrauded the government of more than 9 billion yuan in fiscal subsidies, nearly one third of the total amount.

Another challenge faced by the Chinese NEV makers was the chip ban from countries like the United States, the Netherlands and Japan. For example, they need artificial intelligence (AI) chips such as Nvidia A100/H100 to train autonomous driving algorithms. According to the statistics from AutoForecast Solutions (AFS), an automotive industry research institution, the number of new cars in the global auto industry decreased by about 4.5 million in 2022. The number was expected to reach 3 million in 2023.

“We are very worried that the automotive industrial chain may be interrupted because of the automotive AI chip export ban from the United States,” a person in charge (head )of a smart car chip company told TMTPost.

Chinese Automotive Chip Makers Rise to the Challenge

As automobiles enter an era of electrification and intelligent connectivity, automotive chips are becoming increasingly important. Amid an economic downturn of the global semiconductor industry, it has become inevitable for chip makers to serve the automotive industry.

“The automotive chip industry has undergone great changes in the past 20 years, such as the electric vehicles, Level 2 to Level 4 automatic driving functions, domain controllers, connected cars, as well as informatization and intelligent technologies. This drives the demand for automotive chips to grow by three or four times, or even higher,” said  Li Xiaohe, global vice president of NXP Semiconductors.

Car chips  are the kind of semiconductors that are used for electronic control units in the vehicles and vehicle mounted systems. There are five major categories, including memory controllers, power chips, storage chips, communication chips and sensor chips.

To make car chips safer and more reliable , some of them need to meet automotive-grade requirements. Only when they pass certifications of reliability, quality management and safety, can they be qualified as automotive-grade chips. “The requirements for automotive-grade chips are higher than the consumer-grade and industrial-grade ones. It also takes longer to get certified,” said Miao Wei , former Minister of Industry and Information Technology.

The number of automotive chips required for a traditional fuel vehicle is about 700, according to the data from the China Association of Automobile Manufacturers. For EVs, it’s 1,600 per vehicle. However, Chinese firms provided less than 5 percent of automotive-grade chips, most of which are low-end products. Foreign chip providers have the Chinese NEV companies over a barrel.

“In terms of autonomous driving chips, foreign brands, such as Nvidia and Intel, dominate the market. Chinese companies need to have their own chips,” said Zhang Yongwei, vice chairman and secretary general of the research institute ChinaEV100.

It has become quite urgent  for China to develop its own automotive chip supply chain, especially when the market size of autonomous driving chips will increase by about 36 million pieces per year if there are 18 million new vehicles per year.

For now, over 100 Chinese companies are developing or producing automotive chips, according to the China Automotive Chip Industry Innovation Strategic Alliance. More than 50 listed chip companies claim to have automotive-grade products or mass production.

Liu Weiping, the founder and chief executive officer of Empyrean Technology, said that the company was speeding up to provide electronic design automation (EDA) services to the Chinese automotive semiconductor industry at Semicon China 2023. “There are more and more electronic components in automobiles, especially the NEVs. For example, there are a large number of chips, displays and laser radars. All of them need support from the EDA software,” Liu said .

Horizon Robotics  is a start-up focusing on providing automotive computing solutions for advanced driver assistance systems and autonomous driving for smart vehicles. Founded in 2015, it was once the biggest unicorn in China’s autonomous driving industry. From December 2020 to June 2021, the company ocreated a record of having one round of financing per month for seven months. It has raised 1.5 billion dollars in Series C funding, with a market value of 5 billion dollars.

Other companies, like BYD, choose to integrate chip design and car production. They also build their own factories. “In China, the development of electric vehicles is more urgent than any other country. 70 percent of China's oil is imported, 70 percent of which travels through the Strait of Malacca. And 70 percent of the imported oil is used in the automotive industry. These three numbers stand for the strategic weaknesses of the industry. And one of the solutions is to develop new energy vehicles.” said Wang Chuanfu, founder, chairman and chief executive officer of BYD.

Zack Zheng, vice president of product marketing at the China branch of Imagination Technologies, believed that great changes could be found from functions of cars to the whole computing architecture. “Functions like driving and parking integration have become a standard for low-end and mid-range models. And the computing architecture needs stronger scalability, higher computing efficiency, and greater flexibility," Zheng said.

Founded in 1985 , Imagination Technologies is a semiconductor and software design company headquartered in the United Kingdom. The company started its businesses with graphics processing units (GPUs). As it now takes the automotive industry as one of its key markets, it is investing heavily in the development of a high performance GPU  to suit advanced driver-assistance systems and autonomous driving scenarios.

According to World Semiconductor Trade Statistics, the automotive industry is the fastest growing segment of semiconductor applications in 2022, accounting for 14.1 percent of global semiconductor sales. In the past few years, China's automotive chip production continued to increase, as the AskCI Consulting report said. It was expected to reach 17.2 billion dollars in 2022, an increase of 55 percent compared with 2018. The Asia-Pacific region, including China, might be the fastest-growing market for automotive chips.